Crude oil, bond yields squeeze markets as risk-off mood deepens

Nifty tumbles 1.56% as oil nears $108 and rising yields hammer rate-sensitive banks

India’s benchmark equity indices, the Nifty and Sensex, extended their decline on Monday, mirroring the fall in Asian peers, as rising crude oil prices, a spike in global bond yields, and persisting challenges in West Asia weighed on Indian markets.

 

After Monday’s fall, the Nifty is now at its lowest level in five months, since early April, with the National Stock Exchange’s (NSE’s) total market capitalisation (mcap) falling below the $5 trillion mark. Banks took the maximum hit as bond yields shot up.

 

The Nifty fell 1.56 per cent to end at 22,780.25 on Monday, while the Sensex ended at 72,771.72, down 1.52 per cent. At Monday’s close, the NSE had an mcap of $4.89 trillion. The Nifty closed 2.5 per cent above its 52-week low.

 

 

The Nifty Midcap 150 and Smallcap 250 indices declined 1.63 per cent each at the close. “Global macros are proving to be the biggest spoilsport for Indian markets, with elevated crude prices weighing on sentiment and rising US and Japanese bond yields prompting global investors to pull money out of emerging markets,” said Christy Mathai, fund manager, Quantum Mutual Fund.

 

While US 10-year Treasury yields were at their highest level since June 2007, Brent crude futures were trading around $108 per barrel on Monday evening. Indian 10-year yields were at a two-year high of 7.18 per cent.

 

Asian markets such as Japan, China, and South Korea fell 0.7-2.7 per cent, while Hong Kong ended 0.54 per cent higher.

 

The Nifty 50 is now down 12.9 per cent this year. The Nifty Midcap 150 has dropped 1.3 per cent, while the Nifty Smallcap 250 is up 7.17 per cent this year. “Largecaps have struggled amid stock-specific concerns, including the potential impact of rising bond yields on public-sector banks, the implications of the Insurance Regulatory and Development Authority of India circular for private banks, and succession-related issues at HDFC Bank, Kotak Mahindra Bank, and Tata group,” said Pankaj Pandey, head of fundamental research at ICICIdirect.

 

The Nifty Private Bank index declined 1.5 per cent, and the PSU Bank index fell 3.2 per cent on Monday. “Near-term weakness could persist unless these concerns ease or crude prices cool off, which may not happen quickly,” Pandey said. “For the Nifty, 22,200 remains the key support level, while 23,500 continues to act as near-term resistance.”

 

The Nifty India Vix (Volatility Index) rose 12.5 per cent to 13.69 at Monday’s close, signalling heightened caution among market participants.

 

Mathai said that while first-quarter (April-June/Q1) earnings of 2026-27 were strong, supported by price hikes and lower inventory costs, sustaining this momentum through the year could be challenging. “Nevertheless, we are seeing signs of an earnings recovery after two years, with expectations of double-digit growth and some moderation in valuations among the top 150 companies,” he said. “While near-term market moves may hinge on oil prices, we remain constructive over the medium term and see the current weakness as an opportunity to buy.”